In healthcare insurance, more is not necessarily better

In Singapore, two out of every three persons have an Integrated Shield Plan, commonly known as an IP.

Like most other IP policyholders, I received a long letter from my insurer last year announcing that premiums would go up by more than 30 per cent. Naturally, my first reaction was outrage.

Am I to expect a 30 per cent increase in premiums every year? What does this mean for the long-term affordability of IPs?

Most IPs cover costs of inpatient treatment on an as-charged basis.

As-charged means there are no sub-limits on costs for specific categories such as surgical fees or the number of doctors’ visits while in hospital.

IPs package MediShield Life together with additional private insurance that allows customers to upgrade their MediShield Life B2/C ward coverage to private hospitals or public hospital A/B1 wards.

Singaporeans can use their Medisave to pay for IPs, which help cover up to 90 per cent of Singaporeans’ healthcare costs above a certain amount (deductible).

This gives policyholders incentives to be careful with how and when they obtain treatment, to keep premiums sustainable for all.

However, over time, insurers have introduced cash riders which customers can buy to remove these cost-sharing elements. One of every two IP customers now chooses such cover, even though payments for such riders must be made in cash and not through Medisave funds.

The growing popularity of as-charged IPs with full coverage riders is clearly not sustainable in the long term. The figures tell the story.

All six IP insurers clocked underwriting losses in 2016. These losses were underscored by rates of hospitalisation and hospital bill sizes increasing much faster than the insurers were able to increase premiums.

In October 2016, a task force representing insurers, consumers and doctors produced a report on the steep increase in costs based on an analysis of IP claims in 2010 to 2014, which highlighted a few important facts.

First, IP claim frequency had increased by 9 per cent a year, more than double the rate of increase in national hospitalisation rates.

Second, IP customers with riders were 24 per cent more likely to visit private hospitals than those without riders.

Third, private hospital bill sizes had increased by 18 per cent in the two years up to 2014, compared to a 1.2 per cent increase in public hospital bills in the same period. With patients flocking to private hospitals and insurers picking up the tabs, it is perhaps not a surprise that prices have spiked.

A key finding was that the elimination of incentives for customers to consume less had indeed led to customers consuming more. This is what laymen would call the buffet syndrome.

The task force laid out six recommendations for the insurance industry to address health care cost inflation. Three involve IP insurers changing how they design these products and manage claims.

A flurry of activity ensued in 2017 amongst IP insurers in this regard, with AIA and GE announcing preferred hospital networks and Prudential announcing automatic adjustment of premiums based on claims behaviour for renewing policyholders.

The introduction of medical fee benchmarks, one of the six recommendations, was finally addressed publicly in November last year with Minister Gan Kim Yong’s announcement that MOH will come up with fee benchmarks this year.

This will give insurers a bit more teeth in challenging some costs charged by private hospitals.

These actions are welcome steps in the right direction. Uncontained increases in health care costs benefit no one – not insurers nor customers. Yet, given the choice, individual customers and doctors almost always choose “more”.

But does more care equal better care?

Health care across the world has evolved to be complicated and opaque.

In developed, fee-for-service health care markets, much of it is unnecessary.

Increased availability of diagnostics, drugs and services has led to over-servicing in health care that not only does not lead to better health outcomes, but can lead to worse.

In the United States, Atul Gawande is one of a growing list of doctors who have drawn attention to this phenomenon, calling it “no-value care”. In his New Yorker piece “Overkill ”, he referred to a study of more than a million Medicare patients, of which 25 to 42 per cent had received at least one of the 26 tests and treatments that scientific and professional organisations have consistently determined to have no benefit or to be outright harmful to patients.

While no one has researched this systematically in Singapore, you don’t have to go too far to find anecdotes about doctors prescribing a barrage of tests and medicines, often preceded by the question “Do you have insurance?”

Does more cover and free choice of health care equal better insurance?

The health care and insurance industry has known for a long time that IP riders encourage overconsumption. Some insurers offer partial cover riders alongside full riders, but take up of partial riders has been low. Some even stopped selling full cover riders for some time, but gave in to competition and put them back on the shelf.

Several insurers are planning to introduce pre-authorisation of claims.

Some have already introduced (gentle) nudges in their products to steer customers towards hospitals with whom they have agreed terms on fees. As most of us are used to going directly to doctors and hospitals of our choice, these moves may seem like an affront to our freedom to choose.

But insurers must bite the bullet on measures like these to more actively manage claims, because ultimately, the future of IPs and the sustainability of the health insurance industry lies in their ability to contain costs, and thus, premium rate increases.

They need to do better at explaining to their customers how these measures would benefit them.

I grit my teeth and bore a 30 per cent premium rate increase last year. But if premiums continue rising at this rate, it is entirely possible to imagine ourselves in a future Singapore where those who need private health insurance most will likely not be able to afford it, and private health care becomes a privilege for wealthy Singaporeans and medical tourists.

This is why we should understand that more is not better in the world of health care and health insurance. We can and should seek alternatives to care and insurance products which are cost-effective to ensure premiums are sustainable for all.

ABOUT THE AUTHOR:

Leong Siao Wearn is Chair of the Healthcare Committee at the Singapore Actuarial Society, and Head of Health Insurance at Willis Towers Watson. She wrote this piece in her personal capacity.